When recently asked “if you needed to access funding for your business what would be your preferred method of finance?” 37% answered bank loan, 19% overdraft, 19% government grant, 12% private investor, 9% invoice finance and 4% asset finance. Bank finance still ranks high although an interesting comment on the banking side is that 25% less businesses are now asking for borrowing and of those that did ask they asked for 25% less.
Private equity ranked higher than perhaps would have been the case during previous years. This has no doubt been triggered by TV programmes such as “Dragons Den” and “The Apprentice” and leads us to believe businesses are seeking to expand. It could, however, reflect an impression that the banks are not open for business in the current climate. In reality even if equity investment is available, and there are certainly still angels out there if the proposition stacks up, it’s commonly used in conjunction with bank finance.
Government grants are rated highly although data might be altered by a belief this includes the Enterprise Finance Guarantee Scheme (“EFG”) which as it requires repayment should more accurately be accounted for as a loan rather than a grant.
Most importantly you must get the correct type of finance for your needs and in the words of the NatWest chairman of Small Business don’t forget a lender “kind of needs the money back at some stage” which is a decent point!
Banks need more information now than they used to when the markets were a lot stronger and funds were more freely available. They have to know the “what ifs” so they are able to see what would happen to your business in a downturn. They’re not the only ones that need this information as it is crucial you know the scenarios under which your business would be in difficulty. You yourself need comfort in terms of your headroom not just the bank.
Do not put your cash flow to the side once the facility is agreed. Use a rolling forecast to track actual results and manage peaks and troughs. This can then be built on for long term strategic plans. Talk with your relationship manager at least once a month if not more often.
I am in search of http://tinyurl.com/dktx98. in search of Commercial Collections.. Also published at Accessing Funding For Your Business.
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